It's slightly more spin than bonanza, but your child's Child Trust Fund (CTF) voucher has arrived. This article's about the very best place for you to stash the cash.
 What is a CTF? Can money be added? How do they work? Choosing the right CTF BEST BUY: The top savings CTF Investment CTFs Discuss/Other Articles |
 Mummy, I can count to 250... |
What is a Child Trust Fund?
All babies born since 1 September 2002 are entitled to a lump sum that will be locked away until their 18th birthday.After that it's theirs to spend as they choose.
Those with household incomes over £14,495 get a £250 voucher per eligible child (plus interest for babies born before April '05) and those earning less get £500. When the kids reach seven, a further £250 or £500 voucher will be given, dependent on the same income scale.
Warning! The most important message is act quickly
If you don't do anything with the voucher the government does it for you in a year. Yet, in the meantime you're missing out on it earning interest. At the very least put the voucher in the best savings account (see below) then you're earning interest and can change your mind when you make a decision later.
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Can I add money to the Government's contribution?
Yes. The Government's money is just a bonus; the CTF's real aim is to encourage parents to save for their childrens' future, especially their university education.
Parents of qualifying children should receive a voucher and information pack after applying for child benefit. Those with new babies should receive them soon after the birth (congrats by the way!).
Is it worth adding to it?
- The money goes direct to your child. Babes in arms now can grow to be rebellious 18 year olds. The CTF goes straight to them. Your savings for their college fund may be spent in a day on a Playstation, world trip or some darker purpose. It is their money, you can't stop them. Do consider whether you want your child at 18 to have complete autonomy over all this.
- This is new. This scheme comes from a political agenda and opinions change. It's unlikely any party would be brave enough to reclaim the cash, but the rules and regulations could morph over 18 years.
The CTF is a useful place to stash some cash, but it's probably best not to dunk it all in there. Can the money be withdrawn? Slapping my own wrist: it ain't their's it's our's
I keep checking while writing this to stop myself referring to the trust fund as the ‘Government's money'. Of course it isn't. It's our money, the Government is just the custodian.
This is redistribution of tax revenue into the pockets of those with children. This doesn't mean I don't approve, just remember whose cash they're spending. They're not the generous ones, we are.
Choosing the right CTF type
Do you want to save or to invest for your child's future?
Saving means you're guaranteed to get back what you put in, plus interest. Investing means risking money in a stockmarket linked product in the hope of better returns, but the possibility you won't get back what you started with.
You can only choose a CTF of one type (though you could use non-CTF money in another product to balance the risk). Conventional wisdom argues that over most 18 year periods stockmarkets outperform savings accounts, as there's time for market vagaries to cancel each other out. Yet it's still not risk-free. Just ask anyone who suffered abysmally-performing pension or endowment funds.
There is no right answer. The choice is down to your priorities; are you willing to risk this money shrinking in order to chance it growing more quickly? If you didn't choose by April 2006 the Government will have opened a shares account for you, though you can transfer out of this.
The Top CTF Savings Account
There are only limited providers as most banks consider these large work, little reward. Choosing is simply ‘which pays more?'. The only trick to watch for is ‘bonus rates'; short term introductory interest hikes to draw people in.
On 10 April, Bank of England cut UK base rate to 5% After such a fall, it usually takes the savings account market up to a month to stabilise. This article will be updated as regularly as possible, yet for the time being you should double check rates yourself before applying, or wait until the market has stabilised – I’ll let you know in my Weekly Money Tip. |
The winners
My top pick is Britannia Building Society which pays a whopping 7% rate. Although 1.25% of this is a bonus, it stays high for the first 2 years. Yorkshire Building Society pays 6.55%, with a smaller 0.7% of that being a bonus, yet that only lasts for 12 months.
Some building societies often offer promotional rates to their local area which rival these recommendations, so keep your eye out on your local high street.
| Daily Updated CTF Savings Best Buys | ||
Anything to be careful of? Yes. Most comparison services are profit-driven, and list most but not all best buys depending on commercial relationships. Plus they simply list the top rates, so ensure you check the possible pitfalls in this article for yourself first. By far the best practice is to try the products listed in the article before using this. | ||
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These come in two flavours:
- Stakeholder Account. Has strict operational limits, including a maximum charge it can take off your investment each year of 1.5% and you cannot be charged a penalty for transferring the investment.
- Shares Account. More flexible plans with a wider choice of investments, but the charges can be higher and less transparent.
Even investment experts are just taking a guess; it really is an attempt to predict the future. There is no guarantee their guess will be any better than your own. No one knows the ‘right answer'.
If you can, examine the investment options yourself, making sure the charges aren't too high. Different funds have different levels of risks associated with them. After all, putting your cash in a fund tracking a wide range of large
However, many people tremble at the thought of making their own investment choices so when I first wrote this article in 2005, I asked two top IFAs to give me their picks.
Anna Bowes of Chase de Vere also plumped for these two. The Children's Mutual due to the range of funds available and Foreign and Colonial due to low charges. She also noted Abbey's stakeholder as it's invested in a wide geographic range and HSBC's as it's a simple fund that just tracks the stockmarket.
The Childrens Mutual - Advanced Note
The Children's Mutual is what's called a Friendly Society, a small mutual organisation aimed at investing. It used to be called the Tunbridge Wells Equitable Society and has been offering special investments for children for a long time.
I've never been a fan. Its investment schemes have tended to lack transparency, and have charges loaded up front so if you try and get out of it early, you lose a huge chunk of your investment. However, the nature of the CTF means your money is locked in for 18 years anyway, alleviating the problem yet I'd still tend to steer clear for any other type of investment
If you are going to buy an investment type CTF, it is possible to tweak things to get a slightly better deal. Buy a shares CTF (not stakeholder) via a specialist discount brokers such as Commshare who promise to rebate some of the commission earned back to you.
It's only a tiny amount, but if you're going to get one of these you may as well do it this way (ensure there's no fee charged for doing it though).
Can you change your mind once invested? You can transfer your account both to another provider, and to another investment type, e.g. you can move from savings to stakeholder at any time. There will be no transfer penalties for doing so, though shares type providers may charge dealing costs and stamp duty when you close them. To transfer simply sign up with the new provider; it'll inform the old one for you, and the Government in case it makes any further payments. Ask the new provider to move the money for you and inform the old provider it is being moved. You can't split the CTF if you transfer it though – you must transfer it whole.
What do you do if you've lost your voucher?
If you can't find your voucher you can get a replacement from the Inland Revenue's Child Trust Fund helpline (see contacts below). Vouchers can be reissued without charge.
Other Articles You May Be Interested In:
Child Savings
Where To Start With Saving
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